Placing the Blame as Students Are Buried in Debt

[Perchoutofwater]

Placing the Blame as Students Are Buried in Debt

by Ron Lieber

Tuesday, June 1, 2010

 

provided by

The New York Times

 

Like many middle-class families, Cortney Munna and her mother began the college selection process with a grim determination. They would do whatever they could to get Cortney into the best possible college, and they maintained a blind faith that the investment would be worth it.

 

Today, however, Ms. Munna, a 26-year-old graduate of New York University, has nearly $100,000 in student loan debt from her four years in college, and affording the full monthly payments would be a struggle. For much of the time since her 2005 graduation, she's been enrolled in night school, which allows her to defer loan payments.

 

This is not a long-term solution, because the interest on the loans continues to pile up. So in an eerie echo of the mortgage crisis, tens of thousands of people like Ms. Munna are facing a reckoning. They and their families made borrowing decisions based more on emotion than reason, much as subprime borrowers assumed the value of their houses would always go up.

 

Meanwhile, universities like N.Y.U. enrolled students without asking many questions about whether they could afford a $50,000 annual tuition bill. Then the colleges introduced the students to lenders who underwrote big loans without any idea of what the students might earn someday — just like the mortgage lenders who didn't ask borrowers to verify their incomes.

 

Ms. Munna does not want to walk away from her loans in the same way many mortgage holders are. It would be difficult in any event because federal bankruptcy law makes it nearly impossible to discharge student loan debts. But unless she manages to improve her income quickly, she doesn't have a lot of good options for digging out.

 

It is utterly depressing that there are so many people like her facing decades of payments, limited capacity to buy a home and a debt burden that can repel potential life partners. For starters, it's a shared failure of parenting and loan underwriting.

 

But perhaps the biggest share lies with colleges and universities because they have the most knowledge of the financial aid process. And I would argue that they had an obligation to counsel students like Ms. Munna, who got in too far over their heads.

 

How many people are like her? According to the College Board's Trends in Student Aid study, 10 percent of people who graduated in 2007-8 with student loans had borrowed $40,000 or more. The median debt for bachelor's degree recipients who borrowed while attending private, nonprofit colleges was $22,380.

 

The Project on Student Debt, a research and advocacy organization in Oakland, Calif., used federal data to estimate that 206,000 people graduated from college (including many from for-profit universities) with more than $40,000 in student loan debt in that same period. That's a ninefold increase over the number of people in 1996, using 2008 dollars.

 

The Family

 

No one forces borrowers to take out these loans, and Ms. Munna and her mother, Cathryn, have spent the years since her graduation trying to understand where they went wrong. Ms. Munna's father died when she was 13, after a series of illnesses.

 

She started college at age 17 and borrowed as much money as she could under the federal loan program. To make up the difference between her grants and work study money and the total cost of attending, her mother co-signed two private loans with Sallie Mae totaling about $20,000.

 

When they applied for a third loan, however, Sallie Mae rejected the application, citing Cathryn's credit history. She had returned to college herself to finish her bachelor's degree and was also borrowing money. N.Y.U. suggested a federal Plus loan for parents, but that would have required immediate payments, something the mother couldn't afford. So before Cortney's junior year, N.Y.U. recommended that she apply for a private student loan on her own with Citibank.

 

Over the course of the next two years, starting when she was still a teenager, she borrowed about $40,000 from Citibank without thinking much about how she would pay it back. How could her mother have let her run up that debt, and why didn't she try to make her daughter transfer to, say, the best school in the much cheaper state university system in New York? "All I could see was college, and a good college and how proud I was of her," Cathryn said. "All we needed to do was get this education and get the good job. This is the thing that eats away at me, the naïveté on my part."

 

But Cortney resists the idea that this is a tale of bad parenting. "To me, it would be an uncharitable reading," she said. "My mother has tried her best, and I don't blame her for anything in this."

 

The Lender

 

Sallie Mae gets a pass here, in my view. A responsible grownup co-signed for its loans to the Munnas, and the company eventually cut them off.

 

But what was Citi thinking, handing over $40,000 to an undergraduate who had already amassed debt well into the five figures? This was, in effect, a "no doc" or at least a "low doc" subprime mortgage loan.

 

A Citi spokesman declined to comment, even though Ms. Munna was willing to sign a waiver giving Citi permission to talk about her loans. Perhaps the bank worried that once it approved one loan, cutting her off would have led her to drop out or transfer and have trouble paying back the loan.

 

Today, someone like Ms. Munna might not qualify for the $40,000 she borrowed. But as the economy rebounds, there is little doubt that plenty of lenders will step forward to roll the dice on desperate students, especially because the students generally can't get rid of the debt in bankruptcy court.

 

The University

 

The financial aid office often has the best picture of what students like Ms. Munna are up abbgainst, because they see their families' financial situation splayed out on the federal financial aid form. So why didn't N.Y.U. tell Ms. Munna that she simply did not belong there once she'd passed, say, $60,000 in total debt?

 

"Had somebody called me and said, 'Do you have a clue where this is all headed?', it would have been a slap in the face, but a slap in the face that I needed," said Cathryn Munna. "When financial aid told her that they could get her $2,000 more in loans, they should have been saying 'You are in deep doo-doo, little girl.' "

 

That's not a role that the university wants to take on, though. "I think that would be completely inappropriate," said Randall Deike, the vice president of enrollment management for N.Y.U., who oversees admissions and financial aid. "Some families will do whatever it takes for their son or daughter to be not just at N.Y.U., but any first-choice college. I'm not sure that's always the best decision, but it's one that they really have to make themselves."

 

The complications here go well beyond the propriety of suggesting that a student enroll elsewhere. Colleges don't always know how much debt its students are taking on, which makes it hard to offer good counsel. (N.Y.U. does appear to have known about all of Ms. Munna's loans, though.)

 

Then there's a branding problem. Urging students to attend a cheaper college or leave altogether suggests a lack of confidence about the earning potential of alumni. Nobody wants to admit that. And once a university starts encouraging middle-class students to go elsewhere, it must fill its classes with more children of the wealthy and a much smaller number of low-income students to whom it can afford to offer enormous scholarships. That's hardly an ideal outcome either.

 

Finally, universities exist to enroll students, not turn them away. "Aid administrators want to keep their jobs," said Joan H. Crissman, interim president and chief executive of the National Association of Student Financial Aid Administrators. "If the administration finds out that you're encouraging students to go to a cheaper school just because you don't think they can handle the debt load, I don't think that's going to mesh very well."

 

That doesn't change the fact, however, that the financial aid office is still in the best position to see trouble coming and do something to stop it. University officials should take on this obligation, even if they aren't willing to advise students to attend another college.

 

Instead, they might deputize a gang of M.B.A. candidates or alumni in the financial services industry to offer free financial planning to admitted students and their families. Mr. Deike also noted that the bigger problem here is one of financial literacy. Fine. He and N.Y.U. are in a great position to solve for that by making every financial aid recipient take a financial planning class. The students could even use their families as the case study.

 

The Options

 

The balance on Cortney Munna's loans is about $97,000, including all of her federal loans and her private debt from Sallie Mae and Citibank. What are her options for digging out?

 

Her mother can't help without selling her bed and breakfast, and then she'd have no home. She could take her daughter in, but there aren't good ways for her to earn a living in Alexandria Bay, in upstate New York.

 

Cortney could move someplace cheaper than her current home city of San Francisco, but she worries about her job prospects, even with her N.Y.U. diploma.

 

She recently received a raise and now makes $22 an hour working for a photographer. It's the highest salary she's earned since graduating with an interdisciplinary degree in religious and women's studies. After taxes, she takes home about $2,300 a month. Rent runs $750, and the full monthly payments on her student loans would be about $700 if they weren't being deferred, which would not leave a lot left over.

 

She may finally be earning enough to barely scrape by while still making the payments for the first time since she graduated, at least until interest rates rise and the payments on her loans with variable rates spiral up. And while her job requires her to work nights and weekends sometimes, she probably should find a flexible second job to try to bring in a few extra hundred dollars a month.

 

Ms. Munna understands this tough love, buck up, buckle-down advice. But she also badly wants to call a do-over on the last decade. "I don't want to spend the rest of my life slaving away to pay for an education I got for four years and would happily give back," she said. "It feels wrong to me."

 

Link

 

I found this pretty interesting. I also think that the NY Times when pointing fingers forgot one major culprit. Our society for some reason seems to think that everyone should have a college education. If you look at the woman in the story, she isn't even working in the field that she got her degree in. How many other people do we know that are in the same boat? I know of two in my family that are not working in the field they got their degree in, and I'd dare say that as may as 30% of my friends do not work in the field they got their degree in, and that is probably a conservative guesstimation. Part of the reason that college is so expensive is that demand is so high. How many women go to college, get married and either don't work, or work part time in a different field while their kids are growing up?

[bpwallace49]

Link

 

I found this pretty interesting. I also think that the NY Times when pointing fingers forgot one major culprit. Our society for some reason seems to think that everyone should have a college education. If you look at the woman in the story, she isn't even working in the field that she got her degree in. How many other people do we know that are in the same boat? I know of two in my family that are not working in the field they got their degree in, and I'd dare say that as may as 30% of my friends do not work in the field they got their degree in, and that is probably a conservative guesstimation. Part of the reason that college is so expensive is that demand is so high. How many women go to college, get married and either don't work, or work part time in a different field while their kids are growing up?

 

As usual not enough blame to go around here . . . instead of teaching kids in high school life skills (like how to start building credit and responsible fiscal sense) we teach how to take tests and medieval literature. No one stopped this girl and asked her if she had any idea what she was getting into . . .

 

But as the economy rebounds, there is little doubt that plenty of lenders will step forward to roll the dice on desperate students, especially because the students generally can't get rid of the debt in bankruptcy court.

It is tough for grads right now. Cant get a job, and cant ever get out of that debt.

 

Perch, in a LOT of fields, even if you do not have a degree in that particular discipline, a bachelors degree is still a requirement. I think the societal drive for college is reflective of the job market, and especially now there are over-qualified workers that make it even harder for degreed graduates to get a job in their particular field when they have to compete with people that have years of experience.

[Perchoutofwater]

Perch, in a LOT of fields, even if you do not have a degree in that particular discipline, a bachelors degree is still a requirement. I think the societal drive for college is reflective of the job market, and especially now there are over-qualified workers that make it even harder for degreed graduates to get a job in their particular field when they have to compete with people that have years of experience.

 

No doubt the current job market sucks particularly for fresh graduates, but getting careers outside of your degree is by no means a new phenomenon, and while it is definitely magnified by the lousy job market, the lousy job market is not the root cause of it. Over education, or more aptly over matriculation is the cause of it. What is sad, is due to over matriculation many graduates are under educated.

[bpwallace49]

Perch isnt that the problem? The market "requires" that to get any kind of "American dream" job you NEED a college education. The free market businesses set the minimum standard bar at that level, and a lot of kids grow up with the mindset that in order to get their chunk of "the American dream" they HAVE to go to college. The problem lies in that most will not reach their income expectations, and still have a mountain of debt they will struggle with for decades.

 

That is why the GI Bill is so freakin brilliant. Serve for your country and then you can get a sunsidized college education. earn your degree instead of buying it from colleges that are looking for ways to increase their bottom lines, but not necessarily preparing the students for the workforce.

[frankf]

I have long been a firm believer that high schools and even junior highs should start pushing personal finance and business classes, I think this along with the parents is where the problem originates.

[Perchoutofwater]

Perch isnt that the problem? The market "requires" that to get any kind of "American dream" job you NEED a college education. The free market businesses set the minimum standard bar at that level, and a lot of kids grow up with the mindset that in order to get their chunk of "the American dream" they HAVE to go to college. The problem lies in that most will not reach their income expectations, and still have a mountain of debt they will struggle with for decades.

 

That is why the GI Bill is so freakin brilliant. Serve for your country and then you can get a sunsidized college education. earn your degree instead of buying it from colleges that are looking for ways to increase their bottom lines, but not necessarily preparing the students for the workforce.

 

I don't know that the market does require it though. Sure certain fields will always require specialized education, but many just don't. This is something Ursa and I've kicked around several times, and we both agree we will take a guy with 4 years experience in the field over a guy with a 4 years education any day. I know of my salaried employees very few of them have degrees. Over half of my key personnel that make around $100,000 a year don't have degrees.

 

I agree with you regarding the GI bill. That is one of the few things that government has gotten right.

[Jimmy Neutron]

Kids are way too quick to go into massive debt for an education these days & it is too easy to do.

 

My siblings and I all went through school with a combination of scolarships, help from mom and dad, employer reimbursement and work. Mostly work. I'll take another job to help my kids through school before they get a loan as long as they are working.

 

Contrary to popular opinion, kids are very capable of going to school full-time and working nearly if not full time.

 

I when I hear my nieces and nephews :cry: about how busy their college lives are. I wish I had as much personal time as I did back when I was going to school full time and working full time. Life gets crazy, kids - nut up!

[whoopazz]

I'm no financial expert and we are far from wealthy, but this approach I used has worked pretty well.

 

When my kids were born, my wife and I decided we would like for them to have the opportunity to go to college. So we started scrimping and saving at that time, and making other sacrifices (no new cars, boats, furniture, bla, bla). We taught our girls the importance of study and responsibility in school. They both graduated high school with enough credentials to go essentially wherever they wanted. We had saved enough to pay for a good college education at one of the fine and somewhat affordable public universities here in NC (UNC is great). They will both get their undergrad degrees debt free and I haven't borrowed a cent.

 

Whats' the problem?

[bpwallace49]

I don't know that the market does require it though. Sure certain fields will always require specialized education, but many just don't. This is something Ursa and I've kicked around several times, and we both agree we will take a guy with 4 years experience in the field over a guy with a 4 years education any day. I know of my salaried employees very few of them have degrees. Over half of my key personnel that make around $100,000 a year don't have degrees.

 

I agree with you regarding the GI bill. That is one of the few things that government has gotten right.

 

Perch it is all based on what you do. Your field is much more representative of why trade schools are valuable with the construction biz. I have seen jobs for restaurant managers that require a college degree . . . are you flipping kidding me?

 

While as employers we may value experience over education, most HR departments for companies put under qualifications a MINIMUM of a college degree. That can discourage applicants that do not have that piece of parchment, whether it is applicable or not. Especially with a VERY VERY rich pool of potential employees available now, people can be even more selective with their requirements.

[detlef]

Perch it is all based on what you do. Your field is much more representative of why trade schools are valuable with the construction biz. I have seen jobs for restaurant managers that require a college degree . . . are you flipping kidding me?

 

While as employers we may value experience over education, most HR departments for companies put under qualifications a MINIMUM of a college degree. That can discourage applicants that do not have that piece of parchment, whether it is applicable or not. Especially with a VERY VERY rich pool of potential employees available now, people can be even more selective with their requirements.

It's a chicken and the egg sort of thing. You arguing that you need a degree because the market says you need a degree doesn't refute the notion that society drives people to get degrees they don't need. It just reinforces that point. After all, if everyone and their brother has a degree, why wouldn't most businesses set that as the minimum? Certainly, there are careers that absolutely require a specific degree. However, we still just assume that going out and getting a degree is what you're supposed to do and, quite frankly, we're typically wrong about that. Especially considering the cost.

 

And this isn't just about trades. There are plenty of white collar jobs that simply require work ethic and enough brains to pick things up.

 

More importantly, far too many people turn their nose up at community colleges and state schools. If this girl had the chops to get into NYU, she likely would have had the chops to get in 3rd year after completing 2 years at the local and could have saved herself a ton of jack. And her paper would still say NYU on it. She just would have taken English 1 at a commuter school as opposed to taking it from a Grad student at a prestige school. Additionally, there's a lot of high powered docs who dine at my places and not all of them have degrees from Ivy league schools.

[bpwallace49]

It's a chicken and the egg sort of thing. You arguing that you need a degree because the market says you need a degree doesn't refute the notion that society drives people to get degrees they don't need. It just reinforces that point. After all, if everyone and their brother has a degree, why wouldn't most businesses set that as the minimum? Certainly, there are careers that absolutely require a specific degree. However, we still just assume that going out and getting a degree is what you're supposed to do and, quite frankly, we're typically wrong about that. Especially considering the cost.

 

And this isn't just about trades. There are plenty of white collar jobs that simply require work ethic and enough brains to pick things up.

 

More importantly, far too many people turn their nose up at community colleges and state schools. If this girl had the chops to get into NYU, she likely would have had the chops to get in 3rd year after completing 2 years at the local and could have saved herself a ton of jack. And her paper would still say NYU on it. She just would have taken English 1 at a commuter school as opposed to taking it from a Grad student at a prestige school. Additionally, there's a lot of high powered docs who dine at my places and not all of them have degrees from Ivy league schools.

 

All good points.

[Perchoutofwater]

All good points.

 

How come when he says it you say that, but when I say it you nip at my heels like a little mangy rat terrier?

[Ursa Majoris]

I also think that the NY Times when pointing fingers forgot one major culprit.

Lemme guess..........Obama?

[Perchoutofwater]

Lemme guess..........Obama?

 

Not the direction I was going, but if given enough time I'm sure I can find away to include him too

[Ursa Majoris]

Sure certain fields will always require specialized education, but many just don't. This is something Ursa and I've kicked around several times, and we both agree we will take a guy with 4 years experience in the field over a guy with a 4 years education any day.

We do indeed agree upon this.

[bpwallace49]

How come when he says it you say that, but when I say it you nip at my heels like a little mangy rat terrier?

 

Because he actually articulates his commentary in a cohesive fashion? And goes beyond "well at MY company . . ancedotes?"

[muck]

Lots of debt in lots of places.

 

People, companies, governments.

 

Blech.

 

PS - Self-employment doesn't necessarily require a degree ... and ... lots of kids would be far better served if, by the time they were 18, the only things they could do was (i) describe mathematically and theoretically how/why an internal combustion engine worked, (ii) could give a persuasive speech, (iii) could carry a conversation in either Spanish or Chinese, (vi) have taken and paid back a $500-2,500 loan from a bank for a profit-making venture of some sort, and, finally, (v) have read and could discuss the ideas behihnd at least a half-dozen books off of either this list or this list.

[caddyman]

Because he actually articulates his commentary in a cohesive fashion? And goes beyond "well at MY company . . ancedotes?"

"Gold Jerry...pure Gold"...BP the egomaniac calls the kettle black. Well done, well done. LMFAO!

[Tford]

Not sure how much this applies to kids in the US but in Canada, one problem I see is "career students". People who take classes towards a certain major, just halfway through then bail out into a different major. No real focus towards a goal or if there is, it is short-lived.

 

Congratulations! Your 7 year bachelor's degree in leisure studies just cost $100,000! Enjoy finding a job with that!

 

No focus on end-game goals and wasted time/money equals lots of debt and no plan to get out of it. If you want to go to post-secondary school, research what you want to do beforehand. Explore the career field. Don't just jump in blind into something you think you will like.

 

 

I took a 5-year Engineering degree with a co-op work option in University. I knew exactly what I was getting into, what jobs I was likely to get a shot at and what companies to target. Sure, I graduated with $70,000 of debt but I didn't waste a cent of tuition on unnecessary classes. I knew what I wanted to do and I zeroed in on doing it. As a result, I've never been unemployed for more than one week post-grad. Not trying to brag but my own college education is the best example I have of planning properly to avoid unnecessary and unmanageable debt.

[Avernus]

As usual not enough blame to go around here . . . instead of teaching kids in high school life skills (like how to start building credit and responsible fiscal sense) we teach how to take tests and medieval literature. No one stopped this girl and asked her if she had any idea what she was getting into . . .

 

It is tough for grads right now. Cant get a job, and cant ever get out of that debt.

 

Perch, in a LOT of fields, even if you do not have a degree in that particular discipline, a bachelors degree is still a requirement. I think the societal drive for college is reflective of the job market, and especially now there are over-qualified workers that make it even harder for degreed graduates to get a job in their particular field when they have to compete with people that have years of experience.

 

come on now, you're talking nonsense here...

 

if everyone had good money management skills then the Chinese wouldn't export us all this amazing technology and lead filled toys for our kids...

 

we're in debt for a reason and it starts at the top and goes all the way to the bottom....ignorance is bliss..

[Jackass]

ya know. i don't have a lot of sympathy for this chick. first off, she's able to get by now. her pay will increase eventually and with an NYU degree she'll probably figure out how to have a decent life. she chose the NYU degree. she could've gone to a state school and done just fine. maybe at some point the NYU degree will begin to pay dividends above what the state school degree would have. who knows. not to mention her cost of living in new york over 4 years was probably way higher than if she were in some school in upstate new york. hell a pitcher of beer and 4 shots of kamikazes can be had in some college town for the price of a beer in nyc. it wouldn't have taken a genius or an MBA in finance to figure out all these things ahead of time.

[Puddy]

I have long been a firm believer that high schools and even junior highs should start pushing personal finance and business classes, I think this along with the parents is where the problem originates.

As fundamental as this seems, this is exactly the same thing I've been thinking for several years. A required class in high school should be personal finance. At least teach kids how credit works and how to balance a frickin' checkbook.

[Square]

I agree that there is a lot of blame to go around. I put most of it on parents. You need to teach your kids where money comes from. Any kid that has really had to work and pay for some of their own chit should have some perspective on how much debt 70K is when all is said and done. That along with some idea of how much their job would actually start at. Too many parents want to spoil their kids, too many kids want to live as good or better than their parents as soon as they graduate.

[SEC=UGA]

A guy I used to work with went to Duke, so his daughter wanted to go to Duke. So he sent her to duke, for an Education degree.... He used to complain all the time that he was paying 70K a year for his daughter to go to college, which is more than she would make after teaching for 10 years here in GA.

 

I think people need to consider what degree they are going for before spending the money on one of these expensive schools. If my Daughter wants to be a teacher, it is either Kennesaw State, GA State, or GA Southern. If she wants to be an engineer, I'll pony up for GT, MIT, or whatever. But for a ed or liberal arts degree, there isn't any sense in sending someone to one of these expensive universities.

[westvirginia]

A guy I used to work with went to Duke, so his daughter wanted to go to Duke. So he sent her to duke, for an Education degree.... He used to complain all the time that he was paying 70K a year for his daughter to go to college, which is more than she would make after teaching for 10 years here in GA.

 

I think people need to consider what degree they are going for before spending the money on one of these expensive schools. If my Daughter wants to be a teacher, it is either Kennesaw State, GA State, or GA Southern. If she wants to be an engineer, I'll pony up for GT, MIT, or whatever. But for a ed or liberal arts degree, there isn't any sense in sending someone to one of these expensive universities.

 

Amen.

 

Another point being missed here is that the reason we pay $150/hour for a plumber, $70+/hr for a mechanic, etc. The trades are FAR more profitable in this day and age than most white-collar professions that originate in a university.

 

And Muck is right as well - schools don't teach kids to think rationally, which is the sorest problem of all.